Makin' $$ on the way down?

Ian Murray seamus2001 at home.com
Mon May 14 17:43:25 PDT 2001


http://news.independent.co.uk/business/news/story.jsp?story=72282 World's richest avoid market woes as 180,000 join cash millionaires' ranks By Saeed Shah 15 May 2001 The world's richest people escaped last year's stock market rout unscathed, emerging even wealthier by selling out of equities or using sophisticated hedging techniques.

While small investors were burnt by plunging markets, with both the FTSE 100 and the American S&P 500 ending the year down 10 per cent, rich individuals saw their wealth rise by 6 per cent to $27 trillion (£16.6 trillion).

By the end of last year, 180,000 people had joined the ranks of "high net worth individuals" (HNWIs). These were defined yesterday in a joint study by Merrill Lynch and Cap Gemini Ernst & Young as those with at least $1m of investable or liquid assets ­ in cash, shares and other investments, but not including property. That took the total number of HNWIs in the world to 7.2 million, or 1 in 850 of the global population. Europe accounted for 2.3 million of them, North America 2.5 million and Asia 1.7 million.

Some 57,000 of these individuals had liquid assets worth over $30m ­ and they also saw their wealth grow 6 per cent to $8.4 trillion in total.

Tim Taylor, chief marketing officer for Merrill Lynch in Europe, said the strong performance of economies generally, with booming corporate profits and bonuses, along with diversified portfolios, saved HNWIs last year. He said: "With the focus on equity markets, the 6 per cent rise in HNWI wealth may seem surprising. But these people showed great agility in getting out of technology investments early."

Though 2000 was a good year, it was down considerably on the 18 per cent gain in HNWI wealth seen in 1999. Those who failed to predict last year's technology stock market crash paid the price. By the end of March 2000, when markets peaked, there were 260,000 new HNWIs but 80,000 of them ­ dubbed "minute millionaires" ­ had lost that status by the end of last year.

Wealthy Asians, especially the Japanese, fared badly in 2000, as the Japanese economy continued to stagnate.

In the face of stock market volatility, HNWIs first moved into defensive stocks such as utilities and then, often advised by expensive private bankers, used the growing range of specialised products and alternative investments.

For instance, investors with a large exposure to a single stock can secure protection against a collapse in its value by purchasing a price floor, financing this by selling a price cap. HNWIs also ploughed into alternative investments, such as hedge funds, which earned an average of 11 per cent last year, or venture capital funds, which generated an average return of 41 per cent last year.

Yesterday's report said that the investors who suffered most in 2000 were smaller retail investors. "A core of retail investors held out through the year, hoping the bear market would relent," it said.

Last year's Merrill Lynch/Cap Gemini World Wealth Report predicted 12 per cent growth in the worth of HNWIs for the next five years. The performance in 2000 saw this revised down yesterday but the new forecast is a still bullish 8 per cent annual growth to 2005, to a total wealth of $39.7 trillion. Since 1986, the combined wealth of the world's HNWIs has grown more than three-fold, by 375 per cent.



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